The Determinants of Capital Structure: Evidence from China

Abstract

This paper employs a new database, which contains the market and accounting data from more than 1000 Chinese listed companies up to the year 2000, to document the characteristics of these firms in terms of capital structure. As in other countries, leverage in Chinese firms increases with firm size, non-debt tax shields and fixed assets, and decreases with profitability and correlates with industries. We also find that ownership structure affects leverage. Different from those in other countries, leverage in Chinese firms increases with volatility and firms tend to have much lower long-term debt. The static tradeoff model rather than pecking order hypothesis seems better in explaining the features of capital structure for Chinese listed companies.